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In this paper, we attempt to take undesirable fiscal outcomes into account and adopt the directional distance function method to calculate the efficiency scores of local governments in China. The measures indicate that the eastern provinces have higher governance performance than other regions, and, overall, governance efficiency is slightly decreasing over the period of fiscal decentralization reform. This is statistically confirmed by the following determinants analysis of governance efficiency at the second stage. The most important way to improve local governance performance is to substantially enhance the transparency of governmental fiscal behaviors by putting them under the complete budget and supervision of local legislature.
